What is the value of $1,000 par value 9.375% Marriott Corporation bond for 7% required rates of return, assuming the investor will hold the bond to maturity? Assume the coupon is paid semiannually (every six months) and the bond matures in 3 years?

= $1,063.28

Explanation:

Answer:

Explanation:

The price of a bond is the present value (PV) of the future cash inflows expected from the bond discounted using the yield to maturity.

The yield on the bond - 7%

Coupon rate - 9.375%

The price of the bond can be calculated as follows:

Step 1

PV of interest payment

Semi-annual coupon rate = 9.375%/2 = 4.6875%

semi-annual Interest payment

= (4.6875%*$1000) =

= $46.875 per six month

Semi-annual yield = 7%/2 = 3.5%

PV of interest payment

= A * (1 - (1+r) ^ (-n)) / r

= 46.875 * (1 - (1.035) ^ (-3*2)) / 0.035)

= 46.875 * 5.32855302

=$ 249.775

Step 2

PV of redemption value (RV)

PV = RV * (1+r) ^ (-n)

= 1,000 * (1+0.035) ^ (-2 * 3)

= 813.500

Step 3

Price of bond =

249.77 + 813.50

= $1,063.28